Q2 2022 Newtek Business Services Corp Earnings Call

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Okay.

Good day and thank you for standing by welcome to the <unk> business purposes Corporation second quarter 2002 earnings Conference call. At this time, all participants are in a listen only mode.

After the Speakers' presentation, there'll be a question and answer session.

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Please be advised that today's conference is being recorded.

I'd now like to turn the call over to your speaker today, Barry Sloane, President and CEO . Please go ahead.

Good morning, everybody and greatly appreciate everyone attending.

Q2 <unk>.

<unk> quarter financial results conference call.

I'd also like to welcome Nick led you here. This morning to the call we will be joining me, Nick as our executive Vice President and Chief Accounting Officer.

In addition.

We have invited several new new new tech executives to the call today in a listen only mode I'd like to introduce Nick Young who was hired over a year ago as chief risk Officer, a new Tech business Service Corp, John Mccaffery Executive Vice President of Finance, New Tech business Service Corp, Karla Lewis Senior Vice President of operations and a tech business.

Service Corp, and John disorder.

Just joined US this week as SVP of risk management, and <unk> business Service Corp. I point. These four individuals out primarily because these will all be executives that will be joining.

The new tech banks subject to regulatory approval once we <unk>.

Subject to approval to complete the acquisition of National Bank of New York City next year will become the President and Chief Operating Officer, John Mccaffrey, who has been with US for about six months will be the chief financial Officer of New Tech Bank held a little will be the Chief Digital officer, New Tech Bank Calvert has been with us a little over seven or eight months and John Cabana New recent.

Higher.

We will be joining us as chief compliance Officer. In addition, many of you are familiar with Peter Downs as the new Tech over 19 years, we'll be maintaining his position as chief lending Officer. Peter is also president of New Tech small business finance.

And he will be joining the bank Gary Mills, who is the president of <unk> technology solutions with moving over as Chief Technology Officer of the bank as well the purpose of introducing all these people is to just give everybody a very strong indication that we are prepared for this acquisition is subject to approval many of these.

Executives or a part of our budget for the existing business going forward and have already been involved in our expense structure. In Q1 Q2, we're very excited about our future and look forward to presenting to you today I'd like to call everyone's attention to slide one on the deck for those either fall.

Going on our website. It is in the Investor Relations section and presentations. There's two decks. There today that we'll be looking at the first is the financial results conference call and the other decades, you're updating pending acquisition National Bank of New York City for those of you that are aligned you can follow the deck.

Through the through the Internet connection that you currently have so please call your attention to the forward looking statement on slide number one slide number two we always start off with our returns. These are as of July 2009, as many of you are fully aware. The company has had a stellar track record of over the long term are producing results.

10, five and three results real strong this has been a tough year for us obviously, when we announced the bank deal we're transitioning over.

With the expectation that we will get all of our approvals, which we'll talk about today.

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Obviously, we've done well, we believe with respect to paying our earnings in the form of a dividend as a BDC, obviously stock prices had a difficult running here, which does eat into total rate of return part of that is based upon obviously the difficulty in giving long term guidance as a BDC or as a bank.

Analyst coverage, which we have for our primarily BDC analysts and also have done a stellar job in this transition, but it does make it a little bit more challenging to report as well as what we call a.

Shareholder transitioned from shareholders that have been very much focused on the dividend the dividend only being concerned that as we become a taxable entity a dividend.

Prospectively, we will decline with that said, let's go to slide number three.

So, let's talk a little bit about the potential transition into a bank will be covering that on this call as well as our specific results in the quarter.

On June 1st we had a special meeting of the shareholders and new shareholders overwhelmingly approved.

The proposed authorization of the board to withdraw its application to 40 that company with 89% of the votes cast voting for the opportunity to withdraw.

That particular election in the proxy statement. We described the rationale that management team and the board believes as well as 89% of the shareholders that this is in the shareholders' best interest, which relates to a lowering our cost of capital to the company over the long term be having less of a reluctance on.

Having to issue high cost of equity to continue to fund our growth because we are clearly a growth company you can see that in the way we've delivered growth in dividends growth and earnings historically, particularly as BDC and going forward, we'll be able to grow the business using more core deposits in depth and having to rely upon equity and thats based upon the fact that bdcs have.

With two to one leverage cap of which we've been very conservative a much lower number so we've actually been able to grow earnings or dividends historically, the BDC or that any excessive leverage and we believe that we'll be able to.

Benefit from that going forward also importantly, we'll talk about this a lot on the call is in a bank holding company structure owning a bank. We're extremely excited about unlocking value and the technologies that new Tech has built over the course of 20 years will be talking about the new tech advantage, our trademark product which will be.

Offered to clients through our dashboard, giving business owners that we deal with every single day, a tremendous asset for their business.

We're very very excited about.

Central to consummate our transaction with National Bank of New York City, and become a bank holding company, let's move to slide number four.

Obviously, we'll talk a lot about the benefit of our homegrown technology, which.

Has been fantastic delivering us great financial results in the marketplace.

Solutions things of that nature. However, we're now going to be able to feature and showcase that technology through the new Tech one dashboard, which we positioned as the new Tech advantage, we're also going to be evaluating licensing that.

Both technologies, such as new tracker, which is our unique patented.

Customer acquisition tool that allows us to acquire 1500 clients a day without the use of bankers brokers branches or videos as well as positioning the new tech advantage.

But one dashboard that businesses will ever need we hope to position ourselves as the one company that our business clients will ever need to help them grow their business and become more successful. We're excited about the new tech advantage I'd like to call everyone's attention to slide number five we really highlight.

What is the advantage and the new tech advantage well.

Through the new Tech advantage.

Obviously, a bank holding company and a banking structure, we're going to give our client base and once again I want to focus on that client base is the 30 million clients in the United States at the SBA small business administration defines as independent business owners of small and medium sized businesses, a huge demographic representing approximately 50% of nonfarm GDP.

We're going to be able to give those clients personal banking relationships will illustrate that in the next slide number six we're going to give our clients analytics, we're going to give them frictionless software and transactional capability.

Give them the four things that other banks simply do not.

Sort of use the expression what our competitors do in this space is because of our client base. They take their money, that's a little bit of of course.

Expression for they give them deposit taking capability and they may make you alone that's about it in most cases, they take the client and they push them into their retail system with a retail product.

Not with new Tech bank or new Tech will be doing rich client base, let's go to slide number six.

Therein lies the new tech advantage. The most important thing about the new tech advantage as our competitors have relationships with their customers, where they may or may not know a single person at the institution.

May or may not know that one banker that supposedly attached to the relationship.

With new Tech and the new Tech advantage.

Look at the left hand side of the screen shot youre going to get six to seven relationships almost instantly you'll get it.

Licensed insurance agents, you will get a payroll person youll get a tech solutions person that can design a website or help you with.

Domain name can help you with E mail can help you with.

Managing your workload in private public or hybrid cloud Youll get a payment specialist youll get a lending specialist you'll get a depository specialists and our relationship specialists sitting over the entire account and these are people that youll be able to go online click on them and get a clear camera view every.

Body on camera, everybody with new tech background to be able to talk and speak to them directly. It's the new concept of relationship banking in the year 2022 and 2023.

Bankers know brokers in our branches and the <unk> <unk> solution specialists, so new tech you get relationships through the advantage you're going to get analytics, you're going to be able to look at your payroll compare your payroll. This trend. This year. This time last year. This quarter. This year this quarter last year, the same thing with your payment processing analytics.

Visa discover American express debit versus credit be able to analyze that data be able to analyze those trends you can be able to look at your web traffic statistics and analytics and youre going to be able to get help to try to grow your website to make it more effective through new tech through the solution specialists and through the analytics in addition to.

Transactional capabilities, we're going to talk more and more about the advantage as we go through this presentation real important we think that the advantage is going to be similar to what I'll call. The iPhone smartphone people buy iphones or smartphones not because you can make a better telephone call. They buy for all the other things that you.

Can do and Thats, what the new Tech advantage is going to do yes, you will have the ability to open up a high yield savings account.

A CD.

Our business checking account you have the ability to do that that's the same thing is making a phone call, but look at all the other things youre going to get through the dashboard and the new Tech advantage, it's going to slide number seven.

Slide number seven reemphasize is most of the things that I talked about previously but also important to note in the future. We look forward to also offering new tech tax and digital bookkeeping.

We believe our clients want integration.

Into NGL they want their payroll integrated they want their payments integrated they want their deposits integrated. These are the things that we will be working in <unk> and <unk> and these things could be on the agenda for 2023 slide number eight.

Let's segue back to quarterly highlights and refocus on the acquisition and our future down the road.

Had a really strong quarter for metrics, particularly in the area of 70, fundings, which is one of new techs flagship programs, we funded a record $200 million worth of SBA seven loans, a 112% increase over there.

The quarter prior.

The year prior and that particular quarter.

So we're very very excited about the unit growth. We funded 330 units in the quarter ended June 32022, an increase of 154% in that period of time.

For the first six months of the year $363 million once again record funding, 83% increase important to note our.

Our competitors in the SBA space flat for the year.

Why are we doing better when we're doing this without reducing the credit quality of our borrowers to the contrary, we tightened credit standards with a reduced approval rate presented the loan committee matter of fact in the month of July which is typically a difficult funding model when you blow out a quarter typically you blow your pipeline out.

We funded 62 million or seven eight loans.

July 2022, we're forecasting $750 million for the full year there'll be a 33% increase over 560 million last year.

Also important to note, which will go through.

Lot of the comparisons that we have in.

The income generated aspects.

Were inflated in 2021 due to PPP in the second quarter, 'twenty or 'twenty, one financial results $25 5 billion of PPP fee income that's almost a buck a share for six months 49.7.

$745 8 million approximately over two bucks a share.

We did almost so if you looked at our calendar year last year of $3 40 47.

Our adjusted NII. It take two Bucks, that's $1 47, we almost did that in the first six months of the year with the same cost structure, but obviously getting back into our core business. We like the metrics. We like the plan. We're on we like the progress. We think we are really doing very well on slide number nine.

Some of the operational drivers that are creating this what I'll call a substantial over performance versus our industry competitors. We've made changes to our new tracker platform enabled us to transfer data from the bar through our lending process more seamless manner. Once again, our bankers the brokers know BDO is reducing friction.

I think it's important to note some of our competitors in this M&A space with reduction in gain on sale premium, which we'll talk about pricing perspective, something we really don't have much control over is actually forced people to curtail their lending activities because they almost can't make money in this environment because of their high cost to originate a loan this is where our technology comes in.

The ability to increase efficiencies and the and the ability to even though market forces are against us to continue to drive the results that our investors expect from US. We've made major changes in technology. We continue to receive approximately 100000 referrals per quarter on average and those referrals aren't just for <unk>.

<unk> different <unk> different fiber for their for lines of credit that for Nike Puma conventional loans.

Subject to the acquisition of National Bank of New York City that was the referrals that we'll be able to fit into the conforming C&I and conforming CRA book that will go into the bank important to note. We've made major changes in senior management level. Peter Downs made some great changes in the diesel management team and a tablet.

Gavin junior widely in their staff underneath doing a great job of important to note. We're not standing still we're moving forward. We're innovating business owners are going to be a benefit benefit.

Sure.

Parties of all of this innovation and we're getting tremendous value in assets over the new Tech infrastructure on slide number 10, you could take a look at our pipeline growth is very very clear that we've got.

Tremendous tailwind going into the second half of the year with growth in our pipeline, particularly in the <unk> space, obviously 504, a little bit more challenging. However, please notice the approved pending closing, which is important to be able to get us to our $150 million of closings between the end of the year and we're very excited about our nonconforming.

Conventional business, which we'll talk about later on in the presentation on slide number 11, you can continue to see on an aggregated basis. Our pipeline is still strong and we look forward to a very good second half of the year.

Very good loan demand for US now is loan demand down overall.

I'd say that in a tougher economy, you're tightening your guidelines, but a referral numbers are up or being more selective and we're just outperforming the market in every aspect of lending being able to find the better credits get to the clients give them a frictionless environment process, the business and put the loans on the books.

On slide number 12, we talk about we view, obviously is a secret sauce in all aspects of the business and we focus on growth and lower funnels, but referrals across payment processing payroll tax solutions everything that we did a very very strong we've got 19 years and utilizing the new tracker system.

And a broker banker was BDO and Branchless manner, we're very very excited about it we've materially improved our technological lending applications. We continued upgrades new tracker, we continue to be able to get great data, which will be able to mine the future, which is really going to help our business let's.

Let's move forward.

Slide number 12, I also want to point out when you look at our head count and staff on slide number 13.

This is not announced stores business. There is 480 employees that are currently on the new Tech payroll after the bank acquisition, which we expect to be north of 500, So we're not outsourcing or opportunities to third parties also important to note. While other companies are reporting labor reductions were adding our head count so im looking at.

A lot of the headlines companies are cutting staff they are reducing.

We're adding staff, obviously, you could look into that and have a good sense that management has expectations that its excited optimistic and looks to take advantage of what other people are looking at headwinds in their phase, we look at it as an attractive opportunity to position ourselves for the future.

Slide number 14 very important slide.

So we talked about this in our last conference call, which is differences in 700 lending and what we really wanted to begin to focus on where there are changes in the program that would affect income we did not believe that some of these changes would affect the gain on sale prices, which youll see on slide number 15 Im sorry.

Actually down the road a little bit more so there will be a bit more patient, but I think it's important to note that.

Our gain on sale numbers were tremendously reduced.

In the second quarter, but we were still able to meet number one the quarterly adjusted NII projection, we had out there and actually beat the six month projects. We beat the street consensus for adjusted NII in the second quarter, which is about 72, we came in at 75%. So.

We have a history of operating over 24 years.

<unk> nine through the pandemic of being nimble looking ahead, and making sure that we position ourselves correctly. So once again looking forward to.

Slide number 15, and talking about our performance with respect to dividends paid a 75.

Dividend in Q2.

<unk> represented a 7% increase.

Over the same quarter in the prior year.

We paid $1 40.

For Q1 Q2, if you look at that versus the current price there was a very attractive yield for shareholders and we forecasted a dividend cumulative for the <unk> for the third and fourth quarter, it's difficult for us to forecast.

Precision here, because we don't know when the exact.

The conversion will occur.

We're going to talk about on this call and we expect to get approval when the bank will close shortly thereafter, so we wanted to try to give investors as much guidance as we could with the expectation that.

At.

We will be able to pay a BDC dividends in Q3 and in Q4.

We're forecasting a range of $1 to $1 50 at the lower end of the range that will be $2 40 for the year at the upper end of the range $2 90 for the year.

When we announced the deal back in August of 2021, we clearly had a tremendous transformation of shareholders. We talked about that in previous presentations. So we paid out $3.35 dividend since that time.

To this particular date you put another dollar.

$2 50 on top of that it's almost five blocks at the midpoint.

Okay.

Closer to $4 40 to $4 60.

For people that were upset that they weren't going to get their dividend anymore actually looked a lot of dividend on the table. So with that said, we like the way we've been able to generate cash in the last four quarters. Since we announced the bank deal we are optimistic and believe that the forecast that we've given on dividends, particularly.

And the remaining five months presents an attractive yield to shareholders going forward.

I never 16 talks about the <unk>.

Imperative financials, which we acknowledge are difficult, particularly given that in the first six months of the year versus last.

Six months of the year in 2021, there's about $50 million of PPP income.

We don't get the benefit of we do think we've transitioned nicely back into our core business with a great.

Hope and growth position going forward with a great pipeline. So we feel very good about the financial results that we've reported in Q1 and Q2.

Going to slide number 17, I think it is important to note we put up in adjusted NII of $1 46 for the first six months of the year.

Our midpoint was $1 $45, we were able to get a beat on that.

And.

We feel very good about where we are with respect to wrapping up the end of the year. We're hopeful that we get approval from the fed and the OCC to close the bank transaction.

To begin to focus our efforts on our new financial structure going forward.

Slide number 18 is a slide we use typically to show what our pro forma debt to equity reconciliation is.

We sell quite a few government guarantees over the end of the quarter. So we have a big broker receivable once that broker receivable settled our debt to equity ratio was 1.15 very low very very low. So you could see we're able to generate really attractive yields really good income on this basis with very low financial leverage.

<unk>, obviously, when a bank holding company structure owning a bank will be able to get up to as much as 10 to one which really should be very beneficial for earnings per share slide number 19 is a slightly typically carryover from transactions from presentation to presentation. I think it is important to note 151000 is the average <unk>.

<unk> retained balance that number keeps going down and down very important to note that obviously smaller balances greater diversification with a 19 year track record of default history in frequency. We've done 11, Securitizations, we anticipate doing one.

Or two between now and the end of the year, our loans are prime plus two and three quarters.

The Max rate Thats the rate that we typically get I don't think we've made any concessions on that in 12 years major difference between us and other competitors in this space like LIBOR Bank originates loans in a brokerage model and basically has to have significantly lower rates lower gain on sale. It's just it's just a totally different model we utilized.

<unk> technology to acquire and process the business they are using bankers brokers and videos.

Prime rate on a full adjustment eight in a quarter, it's real important to note prime plus two and three quarters Prime which is high from 43 quarters up 75 basis points to five five is another anticipated raise we'll see if that comes through or not.

But obviously.

This is great for in a banking environment to really be able to have a real attractive net interest margin slide number 20 begins to address the issue of gain on sale and this is slide which basically.

Tempts to address the lag of prime rate and sulfur versus where treasuries are so.

What's occurred with respect to the government guaranteed bonds that we sell into the market, which are prime based floaters.

Brian has lagged because the fed has been behind the treasury curve matter of fact, just to give you. An example, sulphur.

July 27th was five 153% so far as of yesterday, two 3% Prime was four and three quarters.

On July 27.

Prime yesterday, five 5% now when that prime rate change went through our loans adjust <unk>.

<unk> 90 days in.

In arrears, so that when we're selling bonds into the market, we're not able to sell the bonds for coupons.

That's why when you go to slide number 21, you can see that we had a tremendous diminution in our gain on sale price of nine 2% for the quarter down.

Down from 12, 5% gain on sale in the first quarter and down from $13 five in the full calendar year, which you could take a look at the history. Because these are government guaranteed floaters. We do believe this is the primary determinant there could be an determinants. That's our opinion that's our guest we do think that there will be a.

In prices, maybe not in Q3, but hopefully in Q4, when prime begins to adjust back but once again, that's our thought that's our opinion, but we are proud of the fact that we were able to make our numbers, even with almost a 20% decline in gain on sale premiums on slide number 22.

One of our helping aspects of that was our net interest income trends. So you can see gross income.

For Q2, 2022 sequentially from Q2, 2021, almost up by $2 million up to $8 million or 31 from $6 2 million a very nice gain with net interest income going from $4 6 million to $5 1 million net net net interest income will improve.

Because our loans change with a lag quarterly but our interest income based upon our lines of credit change monthly so that should be a nice catch up next month slide number 23 refers to the seasoning of the portfolio. That's important to note. We do believe that most of the defaults are behind us into the <unk>.

<unk> curve.

Slide number 24 important note.

Looking at currency rate $98.

98%.

We worked very hard with our customers. This is a function of making sure our clients have taken advantage of PPP loans.

Loans NERC credits and we're very aggressive in the servicing area. We typically have 40 to 50 professionals that work with our customers $3 billion servicing portfolio regularly to keep them current.

Unlike <unk> because people are concerned about recession and decline we don't have the over leverage with our client base, we don't have clients that have.

Excessive amounts of I'll call it financial and operational leverage many of them are liquid personally as well as professionally and that's led to an extremely high currency rate.

We are appreciative of the work that our team has done with the portfolio.

This obviously is current as of June 30 to be fair and honest and.

Transparency, we don't expect this particular rates to continue, particularly with rising rates and inflation setting in with our client portfolio, but as we sit here today. We're in very good shape I'd also like to point out on slide number 25, we had a significant decrease in non accrual loans at fair value on December 31.

Approximately.

$30 million June 30 down.

The $25 million, a nice decline slide number 26, and 27% classic slides that we continue to rollover presentation of presentation now lets move into the portfolio Company review Slide number 29 talking about our SBA 504 loan program, we're still sticking to a $150 million forecast, our 504 loan business.

It is an important business to us we have substantial lines of credit with Deutsche Bank Capital One bank when Florida Bank, we look forward to having a good second half of the year Slide number 30 talks about how that 504 business works. We're in the 504 business. Unlike the 700 business, we make a loan.

Typically the entire loan moves off our books second gets taken out through SBA debentures first typically get sold at a gain on sale into the secondary market Slide number 31 talks about the return on equities and the return on equity of the final core business towards a 30% return on equity in the <unk> business also north of <unk>.

30%. This is how we're able to generate high ROE as as a BDC high ROE as a BDC and as we demonstrate in the illustration that will talk about shortly generate high ROE as a return on tangible common equity at the bank, we're very excited about our future, particularly lowering our cost of funds.

But it does start off with the fact that we have a 20 year experience in these businesses generating inexpert inexpensive great risk versus.

Versus reward assets with a 19 year history in credit.

And financing capability to generate good returns on equity for our shareholders.

And number 32, we talk about our nonconforming conventional loan program.

People on this call that are familiar with us understand this business, we basically originate a type of loan. It began in 2019 that doesn't fit SBA seven eight criteria in some cases it doesn't a bit because the credit is too good the borrower has too much liquidity too much assets I would fail a credit elsewhere test some cases.

Because alone is greater than $5 million in some cases, because the borrower only occupies less than 50% of the real estate. So there's some vagaries in the program, but this is a complete convention alone there is no government guaranteed and.

As of June 30, the balance of loans originated under this program any $4 2 million in January of 2022, we did our first securitization <unk> rated it we're very excited about that transaction, which we'll talk about.

In the next couple of slides on slide number 33 were.

We are currently negotiating additional JV agreements, we anticipating any final signatures. This week with an institutional investor joint venture partner for $100 million of.

The equity capital, we believe we can fund up to $200 million of nonconforming loans in 2022 and on a going forward basis. As we go to slide number 34, the benefits of the nonconforming conventional loan program to new Tech and its enterprise additional origination fees additional servicing income.

Service for 100 basis points on a full balanced alone.

These loans are hedged we asset liability matched them in the warehouse facility. They give us great operating leverage in the pipeline because loans that don't fit <unk> final for ABL kit that this particular area and this gives us a diversified income streams that really allows us to leverage our existing origination platform.

And the bank forecast, we think will do close to $400 million to $600 million of loans in 2023 and between $600 million 1 billion loans in 2020.

And CLO securitization slide number 35 within our securitization in January 2028, It was $56 3 million class a notes the securitization, which is model in <unk> Mcl business loan Trust 2022 notes were rated single a by Morningstar the weighted average gross group.

Approximately eight two to eight 4% the weighted average net coupon that went into the joint venture seven 4%. That's important to note that the bond the single a bond had approximately a three 2% coupon. The point here is that the net interest margin for the joint venture partners Us and our other equity partner is north of four.

4%.

Basically invested 37% equity capital so here's the important aspect when you take a look at this we've got very attractive returns on equity for new Tech and its JV partners in the double digit net accumulative expected defaults verity and frequency and for new Tech as the originator of the loans genetic business lending where.

We get servicing income of a 100 basis points in the whole size of the portfolio and origination fees were excited about this business. This gives us another engine and we believe that this is going to be very beneficial to us going forward.

And we expect to complete the bank acquisition, the bank holding company transaction and even as a BDC we experienced some nice income benefits from this so we plan on leveraging levering our operational infrastructure track records securitization expertise to grow our nonperforming conventional portfolio, while continuing to remain focused on growing our <unk>.

<unk> and fiber for a loan programs moving forward on slide number 36, one of our important businesses New Tech merchant solutions with a combined equity fair value of $120 million as of June 30.

From a comparative standpoint, many of you are aware the accompany Evo a public traded company, which was acquired by global I believe the multiple is about 18 times EBITDA very attractive.

Believe we have our business conservatively, Mark and we feel good about that valuation is an important business to us, particularly as we become anticipate and hope to become a bank holding company.

I'd number 37, new Tech technology solutions, our cloud computing technology service provider, providing all types of technology solutions.

Solutions and advantages to our independent customer base. This has been a difficult first half for us supply chain issues materially affect the results for the first six months, we expect the run rate to improve in the second half of the year. So we've dealt with.

Our forecast of $4 2 million of EBITDA for the full calendar year, but we do expect a run rate for the second half to get bumped up to about $3 million of EBITDA.

We are very excited obviously about cloud solutions and cloud services you could take a look at some of our products on slide number 38, which shows what we can provide into the marketplace through new Tech technology solutions.

Slide number 39, many of you are aware, we own Pos provider.

Solution, we're excited about Pos on cloud, we have a 51% interest in that particular entity extremely competitive to square Clover and other systems in the marketplace. It's an all encompassing payment system that can be white labeled for our partners that can process payments integrated <unk> integrated food delivery services.

Great with <unk> accounting software like zero square Sage integrates into our own payroll solution. So we're able to do payroll directly from the time and attendance function in the POS we look forward to growing Pos on cloud slide number 14, we talk about our payroll and benefits.

Our business and.

Insurance agency, we're excited that both payroll.

Benefits and insurance estimate profitability in 2022, these will be consolidating entities and we'll be giving more disclosure on these businesses going forward. We carry these businesses for a long period of time, and we're fairly confident with their position in the dashboard and being able to margin pool that these businesses will begin to grow at the rates of success.

We have had in lending payments and tech solutions going forward.

To conclude on slide number 41 with respect to our primary discussion on our performance for Q2, we're very excited about the numbers, we've been able to deliver and we are hopeful and anticipate and we're going to receive regulatory approval during the third quarter of calendar year 'twenty two from the fed and the OCC and closeout.

Transaction shortly thereafter, I would now like to before I turn the presentation over to Nick.

Quickly go through a presentation that we have in the Investor Relations section of our website new.

The new Tech one dot com talking about the update on the pending acquisition of National Bank of New York City. So if you could please go.

To our website and take a look at that deck I think this is important because obviously.

I think many of our investors without much forward guidance on us as a BDC or trying to get some feel for what new Tech will look like as a bank holding company and a bank going forward. Once again I want to report that we are one year into the process of filing.

Pre filing applications and in discussions with the fed for a bank holding company approval on the OCC that are working in tandem to get us approved and that we're pretty excited about our future going forward. We feel very strongly this is in the best interest of shareholders and I want to point out that with respect to information on this.

Particular illustration dated August three 2022, I want to point everyone's attention to slide number one and the forward looking statements.

And slide number two of notes regarding projected financial information important that that gets digested and that these projections and targets are unaudited and presented for illustrative purposes.

Slide number three the acquisition of National Bank of New York City, We anticipate being made for $20 million of cash and one times book.

National Bank of New York City, located in Flushing, New York has been around an established since the fifties. We certainly appreciate the opportunity to make this acquisition.

Very clean bank with a clean portfolio and we believe that the.

The publicly traded company owning National Bank of New York City, and merging our lending operations into the bank should really give us very interesting.

And positive results for the future on slide number four you could take a look at an illustration of what the target total asset would be total asset size for the publicly traded holding company.

We think it'll come in somewhere around $1 2 billion and if you could take a look at the capitalization rates. Obviously this will be a projected targeted well capitalized bank holding company and new take bank in and of itself will start off in a very well capitalized position.

Slide number five we wanted to give the market and the audience a feel for the types of return on average assets and return on average.

Total common equity that we can get for shareholders. These are not normal numbers that you'd see in a typical traditional billion dollar bank.

Bank holding company with a smaller bank underneath it but we'll be able to generate these types of.

Targets because the types of businesses that we've been able to develop over the course of 20 years are attractive the SBA seven business. The 504 business. The actual businesses that are going to set up at the holding company that generates reoccurring income. They are noncredit related will all be very benefit.

Cheryl and accrue.

We're targeting an earnings per share in our first full calendar year between $2 and $2 29.

Our second full calendar year of 2024, the target earnings per share after tax between three and $3 20.

We do believe these are obtainable based upon the work that we've done. However, this is an illustration there's a lot of pieces moving around as interest rates moving around as quality spreads moving around but we're comfortable being able to put these numbers out and believe that these are reasonable targets.

On slide number six you can take a look at the revenue breakdown and the purpose of this particular slide is to demonstrate we're a unique bank start to any banks that have the assets.

Payment processor Tech solutions company payroll company insurance agency sitting up at a bank holding company.

And you can see you've got a real nice diversification of income stream from bank lending as well as opportunities that are coming in from the.

Portfolio companies are going to be held at the bank holding company at slide number seven we go back to our new Tech advantage in the dashboard. The one dashboard youre only going to your business will ever need that we provide you with.

Relationships look at those relationships six or seven relationships, you've got a relationship manager insurance agent payment specialists loans back shows. These all people you can click on get them on camera, you get analytics, you'll get analytics and payment processing and analytics and web traffic information stuff you don't.

Get at your typical bank.

We're very excited about delivering the new tech advantage. We have partners that are interested in working with us and we look forward to.

And web traffic information stuff you don't get at your typical bank.

We're very excited about delivering the new tech advantage. We have partners that are interested in working with us and we look forward to further developing and rolling it is important to note all of the things we have here they exist.

Most of these things we have been in operation for over 10 years. Now these units are being pushed up into our dashboard and delivered to customers with a single sign on one interface, giving our clients the ability to see all the things that we can do for them in the area relationships analytics and transact.

<unk> capability.

On slide number eight we talk about our staffing, we're very well positioned and situated to grow. This business you can see some of the talented people that currently exist.

These units are being pushed up into our dashboard and delivered to customers with a single sign on one interface, giving our clients the ability to see all the things that we can do for them in the area relationships analytics.

<unk> transaction capability.

Slide number eight we talk about our staffing, we're very well positioned and situated to grow. This business you can see some of the talented people that currently exist on the payroll for part of our budget going forward I've had people say well you don't know what it's like running a bank and you don't youre not fully staffed but you don't know what the core.

<unk>.

I don't think Thats, a good debt to make we know what it's like to be staffed we know what the costs are we have great people. If you look at slide number eight or nine that are very experienced in the banking environment. We've got top shelf advisors between our legal firm people that helped us with our application investment banking relationship.

<unk>.

If you go back and you look at our historic returns over the long term.

Not a good bet bet against New Tech we do appreciate.

Our loyal investors that have stuck with us, particularly through the recent times in this transition we are excited about our future. It's also important to note as we go to slide number 10 management interests are aligned with shareholders really important to note.

This management team and board, we love dividends and we loved that time being a BDC. However, things change markets change. This is the best structure for us going forward, we're really excited about and we've historically been able to outperform the Russell and the S&P and our earnings have really been strong even in the first six months of the year.

So.

With that said I'd like to now transition the remaining portion of this call to Nick Ledger, Our Chief Accounting Officer, Nick take it away. Thank.

Thank you Mac and good morning, everyone. You can find a summary of our second quarter 2022 results on slide number 43, as well as a reconciliation of our adjusted net investment income or adjusted NII on slide number 45 for.

For the second quarter of 2022, we had a net investment loss of $2 million to $5 million.

Or a loss of <unk> 90 per share as compared to a net investment income of $15 5 million or <unk> 69 per share in the second quarter of 2021.

Note that the income related to the PPP of $25 5 million is included in the second quarter of 2021 investment income.

Adjusted NII, which is defined on slide number 44 was $18 1 million or <unk> 75 per share in the second quarter of 2022, as compared to $27 million or $1 20 per share for the second quarter of 2021.

Focusing on second quarter 2022 highlights we recognized $19 2 million in total investment income of 47, 6% decrease over the second quarter of 2021 total investment income of $36 6 million. The primary driver for the decrease of total investment income was primarily due to the $25 5 million.

Fees from the PPP in 2021.

Dividends from portfolio companies of $5 million in Q2, 2022 helped to offset the decrease of the PPP fees and.

In addition interest income increased by $1 $8 million, resulting from a year over year increase in the accrual loan portfolio.

Other income increased by $1 1 million in the second quarter of 2022 compared to Q2 of 2021, resulting mainly from a year over year increase in SBA seven loan origination volume.

Servicing income increased by 14, 4% to $3 2 million in the second quarter of 2022 versus $2 8 million in the same quarter of 2021.

Dividends from portfolio companies for the second quarter of 2022 totaled $5 million, which included $3 one from NMS $135 million from NBL, our 504 business $360000 from NCL.

Our conventional loan joint venture and $150 from mobile money compared to the second quarter of 2021, there were no distributions from portfolio companies.

Total expenses for the second quarter of 2022 increased slightly by $400000 compared to Q2, 2021, mainly driven by higher interest related costs.

Realized gains recognized from the sale of the guaranteed portions of SBA loans sold during the second quarter totaled $21 3 million as compared to $14 $1 million during the same quarter in 2021.

In the second quarter of 2022, and SPF sold 338 loans for $193 million at an average premium of nine 2% as.

As compared to 142 loans sold during the second quarter of 2021 for $87 4 million at an average premium of 14% the.

The increase in realized gains was attributed to higher SBA 700 loan origination volume in the second quarter of 2022, when comparing to the second quarter of 2021 as.

As I mentioned earlier income related to the PPP is included investment income not unrealized gains.

Realized losses on SBA non affiliate investments for the second quarter of 2022 was $1 4 million as compared to $2 $7 million in the second quarter of 2021.

Overall, our operating results for the second quarter 2022 resulted in a net increase and net assets of $13 5 million or <unk> 56 per share and we ended the quarter with NAV per share of $16 31.

I would now like to turn the call back to Barry.

Thank you Nick operator, we'd love to open it up to Q&A.

Thank you so much and again as a reminder to ask a question you will need to press star one one on your telephone and please standby, while we compile the Q&A roster.

Your first question comes from the line of Paul Johnson from <unk>. Please go ahead and ask your question.

Taking my questions good.

Good morning, everyone on the call mentioned a lot of names there earlier.

Anyways.

I was hoping I don't know if theres any way to quantify potentially the impact.

Just kind of quarter over quarter.

Either one.

What earnings would have been this quarter potentially what.

Kind of the benefit would be next quarter just from the increase in the prime rate.

During the second quarter.

Yes, so Paul it's a tough one because.

That would require us to sort of forecast.

The bond prices going to be in the capital markets are going to do with respect to pricing. So.

I do think with respect to the roll forward.

Youre, probably going to get a lag on that on that coupon. So you're kind of apples a partial adjustment between the two recent rate hikes, but the full adjustment of for example, the three quarters of a point that we just had in prime this is a second three quarters.

That's a fourth quarter event with respect to <unk>.

Gross coupon of the portfolio, but you could see that.

We're getting short term movements in the expense, but not the full benefit of the portfolio with respect to gain on sale.

<unk>.

With our portfolio mix.

I don't believe we've ever had a gain on sale that's been.

Lower than the number we had in the second quarter going back over seven years, you can actually see it in the chart.

Is it fair for me to say Gee, I think that'll be the floor.

Can't say that although im optimistic that we should do better from that number.

Hopefully that's somewhat helpful.

Yes, that's very helpful and I understand.

A difficult question to answer so I.

Appreciate that.

My next question is just kind of around.

I guess, how you look at.

Sort of a risk as you're underwriting the portfolio in any given quarter is there any point during cycle, where you would begin to shift here origination strategy to focus on potentially like a higher quality subset of the <unk> market.

<unk> small business finance for licensed nonbank lender that is designed and we're still waiting for.

Obviously final approval on everything, but we believe based upon conversations to set up at the bank holding company and a run off mode. So those loans are in Securitizations those will run down to the new business will be in the bank.

The other business will be able to bank holding company in a runoff mode.

And that we believe also will be attractive because we'll be able to ultimately harvest the equity that's sitting in that in that particular relationship over time.

So.

<unk>.

We do think that.

Primarily using core deposits versus securitization.

And other interim funding amounts will be a measurably beneficial.

We still will be utilizing securitization at the bank holding company and May actually do Securitizations out of the bank from time to time from a diversification standpoint.

Got it that makes sense.

Yeah.

Those are all my questions. This morning.

I appreciate you having me.

Thank you so much mackinnon if you would like to ask a question press Star one one on your telephone keypad.

And we have a next question from the line of Adam Martin.

RBC. Please go ahead.

That's on the quarter.

Just kind of looking forward as we're in this new paradigm I guess with the fed what do you think is if you could just talk about.

Unlocking value as a bank for owning a bank for shareholders. How does that kind of just summarize some of the points on what that might look like.

Sure Adam I appreciate the question because today, New Tech has primarily five lines of business.

That.

They do operate primarily independently from each other and by being able to.

Get our client base to focus on the fact that we do all these things without having to have.

Human activity talk about them or coordinate them.

To be able to message them. So the new take advantage of the dashboard.

It's going to be illuminating to our customer base.

The dashboard or the new take advantage is going to be right. There as we open up the depository account as we are able to margin pool.

My payment processing clients today, they have their deposit elsewhere my payroll accounts that have the deposits elsewhere.

The ability to margin pool and give.

Brakes on.

Web hosting.

Terminals.

Hosting hosting plans payroll.

These things are going to be very beneficial to clients and the analytical tools that youre going again, so theyre going to get a lot of things in one place. They typically go to two to three four or five times, a week 12 times a month to be able to see it in front of them. In addition, when they compare what we do versus their current depart.

Vittorio It's night and day.

The depository don't give the customers anything they take their money and maybe it will make them alone with us theyre going to get analytical tools to run their business futuristic Lee we believe that we'll be able to integrate most of these things into one GL. We currently have GL integrations today that we'll be able to illuminate.

They're going to realize that they've got a full team of professional solution providers, where they don't get that today, whether it's the top four banks.

The several thousand community banks or the Superregionals. So.

In addition to that we currently have got existing financial institutions that have said Gee, we want your dashboard would you white label it for us. So we've become the backend Bureau, so I could take a small community bank that can't afford to do all of these services I can put them in business overnight and I can provide payroll to their <unk>.

<unk> goodbye payments to their clients I can provide insurance to their clients all under their brand and unlocking that value from a software and technologic technological perspective. In addition to being a great product tool, we think will bring great shareholder value it'll be similar to what I think <unk> has been able to do with encino.

<unk>, where they've spun out these technologies, but sort of in a very different manner, we will be very much behind the software. So we bring software people and process to the customer base, we think that putting these tools that we've developed over 20 years in a banking environment is going to be easier for our.

Clients to see it's going to be easier for our clients to access and it's going to be easier for our employees to deliver those solutions to the customer base. So that we talk about unlocking which is.

It's a simple word.

A few syllables do it but there's a lot more behind it and that's that's what we mean by unlocking value.

Yes that makes a lot of sense. Thank you so much.

Thank you I appreciate it.

Thank you so much and we don't have any more questions I would now like to turn the conference bringing further good news from the tech for closing remarks well.

We know that was a mouthful and we appreciate you getting that and within an hour and we really appreciate your attendance.

A lot of people on this call today bigger numbers than they've ever seen before and very very thankful.

To the audience for questions to the analysts that joined we had two analysts put out reports on this this morning, and we appreciate the updates and look forward to our next report.

Look forward to bringing further good news from the tech have a great day, everyone. Thank you.

Thank you presenters and this concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

Sure.

[music].

So.

[music] Johan during Q&A, you can dial star one.

[music].

Good day, and thank you for standing by and welcome to the <unk> business Services Corporation second quarter 2002 earnings Conference call. At this time, all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

Ask the question during the session you will need to press star one one on your telephone you were going to hear an automated message advising you had this waste.

He advises todays conference is being recorded.

I would now like to turn the call over to your speaker today, Barry Sloane, President and CEO . Please go ahead.

Good morning, everybody and greatly appreciate everyone attending our Q2 second quarter financial results Conference call.

I'd also like to welcome Nick led here this morning to the call. It will be joining me, Nick as our executive Vice President and Chief Accounting Officer.

In addition.

We have invited several new new new tech executives to the call today in a listen only mode I'd like to introduce Nick Young who was hired over a year ago as Chief risk Officer, <unk> business Service Corp, John Mccaffery Executive Vice President of Finance, New Tech business Service Corp, <unk> Senior Vice President of operations and a tech business.

Service Corp, and John disorder.

Just joined US this week as SVP of risk management, and <unk> business Service Corp. I point. These four individuals out primarily because these will all be executives that will be joining us.

The new Tech bank subject to regulatory approval once we.

Subject to approval to complete the acquisition of National Bank of New York City next year will become the President and Chief Operating Officer, John Mccaffrey, who has been with US for about six months will be chief financial officer of New Tech Bank Kelvin live will be the Chief Digital officer, a new Tech bank held thats been with us a little over seven or eight months and John Cabana New recent.

Higher.

We will be joining us as chief compliance Officer. In addition, many of you are familiar with Peter Downs, just built a new tech COVID-19 years, we'll be maintaining his position as chief lending Officer. Peter is also president of New Tech small business finance.

And he will be joining the bank Gary Mills, who is the president of New Tech Technology solutions, we are moving over as Chief Technology Officer of the bank as well the purpose of introducing all these people is to just give everybody a very strong indication that we are prepared for this acquisition is subject to approval many of these.

Executives or a part of their budget for the existing business going forward and have already been involved in our expense structure. In Q1 Q2, we're very excited about our future and look forward to presenting to you today I'd like to call everyone's attention to slide one on the deck for those of you there.

Boeing on our website. It is in the Investor Relations section and presentations. There is two decks. There today that we'll be looking at the first is the financial results conference call and the other decades, the updating pending acquisition National Bank of New York City for those of you that are online you can follow the deck.

Through the Internet connection that you currently have so please call your attention to the forward looking statement on slide number one slide number two we always start off with our returns. These are as of July 2009, as many of you are fully aware. The company has had a stellar track record of over the long term are producing results.

Our 10, 5% and three results real strong this has been a tough year for us obviously.

We announced the bank deal we're transitioning over.

With the expectation that we will get all of our approvals, which we'll talk about today.

And.

Obviously, we've done well, we believe with respect to paying our earnings in the form of the dividend as a BDC obviously the stock prices had a difficult running here, which does eat into total rate of return part of that is based upon obviously the difficulty in giving long term guidance as a BDC or as a bank.

Our analyst coverage, which we have for our primarily BDC analysts and also have done a stellar job in this transition, but it does make it a little bit more challenging to report as well as what we call a shareholder transition from shareholders that have been very much focused on the dividend the dividend only being concerned that as we become a <unk>.

<unk> a dividend.

Prospectively, we will decline with that said, let's go to slide number three.

So, let's talk a little bit about the potential transition into a bank will be covering net on this call as well as our specific results in the quarter.

On June 1st we had a special meeting of the shareholders and <unk> shareholders overwhelmingly approved the.

The proposed authorization of the board to withdraw its application to 40 that company with 89% of the votes cast voting for the opportunity to withdraw.

That particular election in the proxy statement. We described the rationale that management team and the board believes as well at 89% of the shareholders that this is in the shareholders' best interest, which relates to a lowering our cost of capital to the company over the long term be having less of a reluctance on.

Having to issue high cost of equity to continue to fund their growth because we are clearly a growth company you can see that in the way, we've delivered growth and dividend growth and earnings historically, particularly as BDC and going forward, we'll be able to grow the business using more core deposits and debt and having to rely upon equity and thats based upon the fact that bdcs have.

Two to one leverage cap of which we've been very conservative, but much lower numbers. So we've actually been able to grow earnings or dividends historically as a BDC without any excessive leverage and we believe that we'll be able to.

Benefit from that going forward also importantly, we'll talk about this a lot on the call is in a bank holding company structure owning a bank. We're extremely excited about unlocking value and the technologies that new Tech has built over the course of 20 years will be talking about the new tech advantage, our trademark product which will be.

Offered to clients through our dashboard, giving any business owners that we deal with every single day, a tremendous asset for their business.

We're very very excited about the potential to consummate our transaction with National Bank of New York City.

Become a bank holding company.

Moving to slide number four.

Obviously, we'll talk a lot about the benefit of our homegrown technology, which.

Has been fantastic delivering us great financial results in the marketplace.

Solutions things of that nature. However, we're now going to be able to feature and showcase that technology through the new Tech one dashboard, which we positioned as the new Tech advantage, we're also going to be evaluating licensing that.

Both technologies, such as new tracker, which is our unique patented.

Customer acquisition tool that allows us to acquire 1500 clients a day without the use of bankers brokers branches or videos as well as positioning the new tech advantage.

But one dashboard that businesses will ever need we hope to position ourselves as the one company that our business clients will ever need to help them grow their business and become more successful. We're excited about the new take advantage I'd like to call everyone's attention to slide number five we really highlight.

What is the advantage and the new tech advantage well.

Through the new Tech advantage.

Obviously, a bank holding company and a banking structure, we're going to give our client base and once again I want to focus on that client base. It's the 30 million clients in the United States at the SBA small business administration defines as independent business owners of small and medium sized businesses, a huge demographic representing approximately 50% of nonfarm GDP.

We're going to be able to give those clients personal banking relationships will illustrate that in the next slide number six we're going to give our clients analytics, we're going to give them frictionless software and transactional capability.

Give them or for things that other banks simply do not.

Sort of use the expression what our competitors do in the space is the Golar client base. They take their money, that's a little bit of of course.

The expression for they give them deposit taking capability and they may make you alone that's about it in most cases, they take the client and they push them into their retail system with a retail product.

Not with new Tech bank or new Tech will be doing rich client base, let's go to slide number six.

Therein lies the new tech advantage. The most important thing about the new tech advantage as our competitors have relationships with their customers, where they may or may not know a single person at the institution. They may or may not know that one banker that supposedly attached to the relationship with new tech.

And the new Tech advantage. If you look at the left hand side of the screen shot youre going to get 6% to seven relationships almost instantly you'll get a licensed insurance agent Youll get a payroll person youll get a tech solutions person that can design a website or help you with.

Domain name can help you with E mail can help you with.

Managing your workload in private public or hybrid cloud Youll get a payment specialist youll get a lending special youll get a depository specialists and our relationship specialists sitting over the entire accounts and these are people that youll be able to go online click on them and get a clear camera view.

Everybody on camera, everybody with new tech background to be able to talk and speak to them directly. It's the new concept of relationship banking in the year 2022 and 2023.

No bankers no brokers no branches <unk> <unk> solution specialists, so new tech you get relationships through the advantage you're going to get analytics, you're going to be able to look at your payroll compare your payroll. This this trend. This year. This time last year. This quarter. This year this quarter last year, the same thing with your payment processing analytics.

Visa discover American express debit versus credit be able to analyze that data be able to analyze those trends you can be able to look at your web traffic statistics and analytics and youre going to be able to get help to try to grow your website to make it more effective through new tech through the solutions specialist and through the analytics in addition to.

Transactional capabilities, we're going to talk more and more about the advantage as we go through this presentation real important we think that the advantage is going to be similar to what I'll call. The iPhone smartphone people buy iphones or smartphones not because you can make a better telephone call a buyer for all the other things that you.

Can do and Thats, what the new Tech advantage is going to do yes, you will have the ability to open up a high yield savings account.

Hey, <unk>.

Our business checking account you have the ability to do that that's the same thing is making a phone call. We'll look at all the other things youre going to get through the dashboard and the new Tech advantage to go to slide number seven.

Slide number seven reemphasize is most of the things that I talked about previously but also important to note in the future. We look forward to also offering new tech tax and digital bookkeeping.

We believe our clients want integration into NGL.

Their payroll integrated they want their payments integrated they went their deposits integrated these are the things that we'll be working in <unk> and <unk> and these things could be on the agenda for 2023 slide number eight.

Let's segue back to the quarterly highlights and refocus on the acquisition and our future down the road.

We had a really strong quarter for metrics, particularly in the area of 70, fundings, which is one of the new tax flagship programs. We funded a record $200 million worth of SBA seven loans, a 112% increase over there.

Quarter prior.

Over the year prior and that particular quarter.

We're very very excited about the unit growth, we funded 330 units.

The quarter ended June 32022, an increase of 154% in that period of time.

For the first six months of the year $363 million once again record funding, 83% increase important to note our.

Our competitors in the SBA space flat for the year.

Why are we doing better while we're doing this without reducing the credit quality of our borrowers to the contrary, we tightened credit standards with the reduced approval rate presented the loan committee matter of fact in the month of July which is typically a difficult funding model when you blow out a quarter typically you blow your pipeline out.

We funded 62 million a 70 loans.

In July 2022, we're forecasting $750 million for the full year there'll be a 33% increase over 560 million last year.

Also important to note, which will go through.

Out of the comparisons that we have in.

The income generated aspects.

Were inflated in 2021 due to PPP in the second quarter 2021 financial results $25 5 billion of PPP fee income that's almost a buck a share for six months 49 <unk>.

$745 8 million approximately over two bucks a share.

We did almost so if you looked at our calendar year last year of $3 40, <unk> 47.

Our adjusted NII, It take too, but that's $1 47, we almost did that in the first six months of the year with the same cost structure, but obviously getting back into our core business. We like the metrics. We like the plan. We're on we like the progress. We think we are really doing very well.

Slide number nine.

Some of the operational drivers that are creating this what I would call a substantial over performance versus our industry competitors. We've made changes to our new tracker platform enable us to transfer data from the bar through our lending, perhaps a more seamless manner. Once again, our bankers know brokers know BDO is reducing friction.

I think it is important to note some of our competitors in this M&A space with the reduction in gain on sale premium, which we'll talk about the pricing perspective, something we really don't have much control over is actually forced people to curtail their lending activities because it almost can't make money in this environment because of their high cost to originate alone. This is where our technology.

He comes in the ability to increase efficiencies and the <unk> and the ability to even though market forces are against us to continue to drive the results that our investors expect from US. We've made major changes in technology. We continue to receive approximately 100000 referrals per quarter on average and those referrals.

Just for <unk>, there for seven a different power for their for lines of credit that for Nike Puma conventional loans.

Subject to the acquisition of National Bank of New York City that was the referrals that we'll be able to fit into the conforming C&I and conforming Cri book that will go into the bank important to note. We've made major changes at the senior management level. Peter Downs made some great changes in the diesel management team and a tablet.

Gavin junior widely in their staff underneath doing a great job of important to note. We're not standing still we're moving forward. We're innovating business owners are going to be a benefit benefit.

<unk>.

Parties of all of this innovation and we're getting tremendous value in assets over the new Tech infrastructure on slide number 10, you could take a look at our pipeline growth is very very clear that we've got.

Tremendous tailwind going into the second half of the year with growth in our pipeline, particularly in the <unk> space, obviously 504, a little bit more challenging. However, please notice the approved pending closing, which is important to be able to get us to our $150 million of closings between the end of the year.

We're excited about our nonconforming conventional business, which we'll talk about later on in the presentation on slide number 11, you can continue to see on an aggregated basis. Our pipeline is still strong and we look forward to a very good second half of the year.

Very good loan demand for US now is loan demand down overall, well I would say that in a tougher economy, you're tightening your guidelines, but a referral numbers are up or being more selective and we're just outperforming the market in every aspect of lending being able to find the better credits get to the clients.

Give him a frictionless environment process, the business and put the loans on the books.

On slide number 12, we talk about we view, obviously is a secret sauce in all aspects of the business and we focus on growth and lower hurdles, but referrals across payment processing payroll tax solutions everything that we did a very very strong we've got 19 years and utilizing the new tracker system and a.

Broker bank or less BDO and Branchless manner, we're very very excited about it we've materially improved our technological lending applications. We continued upgrades new tracker, we continue to be able to get great data, which will be able to mine the future, which is really going to help our business.

Let's move forward to slide number 12, I also want to point out when you look at our head count and staff on slide number 13.

This is not announced source business. There is 480 employees that are currently on the new Tech payroll after the bank acquisition, which we expect to be north of 500, So we're not outsourcing or opportunities to third parties also important to note. While other companies are reporting labor reductions were adding our head count so I'm looking at.

A lot of the headlines companies are cutting staff they are reducing.

We're adding staff, obviously, you could look into that.

A good sense that management has expectations that its excited optimistic and look to take advantage of what other people are looking as headwinds in their phase we look at it as an attractive opportunity to position ourselves for the future slide number 14 very important slide.

So we talked about this in our last conference call, which is differences in 700 lending and what we really wanted to begin to focus on where there are changes in the program that would affect income.

We did not believe that some of these changes would affect the gain on sale prices, which youll see on slide number 15, I am sorry.

Actually down the road a little bit more so there will be a bit more patient, but I think it's important to note that.

Our gain on sale numbers were tremendously reduced.

In the second quarter, but we were still able to meet.

<unk> quarterly adjusted NII projection, we had out there and actually beat the six month project, we beat the street consensus for adjusted NII in the second quarter, which was about 72, we came in at 75 so.

We have a history of <unk>.

Operating over 24 years through <unk> and through the pandemic being nimble looking ahead, and making sure that we position ourselves correctly. So once again looking forward to slide number 15, and talking about our performance with respect to dividends paid a 75.

And in Q2.

Represented a 7% increase.

Over the same quarter in the prior year.

Paid down 40%.

For Q1 Q2, if you look at that versus the current price there was a very attractive yield for shareholders and we forecasted a dividend cumulative for the sector for the third and fourth quarter, it's difficult for us to forecast with precision here, because we don't know when the exact.

The conversion will occur.

To talk about on this call and we expect to get approval when the bank will close shortly thereafter, so we wanted to try to give investors as much guidance as we could with the expectation that.

We will be able to pay a BDC dividend in Q3 and in Q4.

We're forecasting a range of $1 to $1 50 at the lower end of the range that will be $2 40 for the year at the upper end of the range $2 90 for the year, when we announced the deal back in August of 2021, we clearly had a tremendous transformation of shareholders, we've talked about that in previous presentations.

So we paid out $3 35 in dividends since that time to.

To this particular date.

And you can put another dollar.

$2 50 on top of that it's almost five blocks.

The mid point.

Okay.

Closer to $4 40 to $4 60.

For people that were upset that they weren't going to get their dividend anymore actually looked a lot of dividend on the table. So with that said, we like the way we've been able to generate cash in the last four quarters since we announced the bank deal, we're optimistic and believe that the forecast that we've given on dividends, particularly.

And the remaining five months presents an attractive yield to shareholders going forward.

Number 16 talks about the <unk>.

Paris financials, which we acknowledge are difficult, particularly given that in the first six months of the year versus last.

Six months of the year in 2021, there is about $50 million of PPP income.

We don't get the benefit of we do think we've transitioned nicely back into our core business with a great.

And growth position going forward with a great pipeline. So we feel very good about the financial results that we've reported in Q1 and Q2.

Turning to slide number 17, I think it's important to note we put up in adjusted NII of $1 46 for the first six months of the year.

Our midpoint was $1 45, so we are able to get a bead on that.

And.

We feel very good about where we are with respect to wrapping up the end of the year. We're hopeful that we get approval from the fed and the OCC to close the bank transaction and we can begin to focus our efforts on our new financial structure going forward.

Slide number 18 is a slide we use typically to show in our pro forma debt to equity reconciliation is.

We sell quite a few government guarantees over the end of the quarter. So we have a big broker receivable once that broker receivable settled our debt to equity ratio was 1.15 very low very very low. So you could see we're able to generate really attractive yields really good income on this basis with very little financial.

Average, obviously when a bank holding company structure owning a bank will be able to get up to as much as 10 to one which really should be very beneficial for earnings per share slide number 19. This is a slide we typically carryover from transactions from presentation to presentation. I think it's important to note 151000 is the average <unk>.

<unk> retained balance that number keeps going down and down very important to note that obviously smaller balances greater diversification with a 19 year track record in default history in frequency. We've done 11, Securitizations, we anticipate doing one.

Or two between now and the end of the year, our loans are prime plus two and three quarters.

The Max rate Thats the rate that we typically get I don't think we've made any concessions on that 12 years major difference between us and other competitors in this space like LIBOR Bank originates loans in a brokerage model and basically has to have a significantly lower rates lower gain on sale.

It's just a totally different model will utilizing technology to acquire and process. The business. They are using bankers brokers and videos.

Prime rate on a full adjustment eight in a quarter, it's real important to note prime plus two and three quarters Prime which is like from 43 quarters up 75 basis points to five five is another anticipated raise we'll see if that comes through or not.

But obviously.

This is great for in a banking environment to really be able to have a real attractive net interest margin slide number 20 begins to address the issue of gain on sale and this is a slide which basically.

Tempts to address the lag of prime rate and sulfur versus where treasuries are so.

What's occurred with respect to the government guaranteed bonds that we sell into the market, which are prime based floaters.

Brian has lagged because the fed has been behind the treasury curve matter of fact, just to give you. An example, sulphur.

July 2007 was 153% so far as of yesterday, two 3% Prime was four and three quarters.

On July 27.

Prime yesterday, five 5% now when that prime rate change went through our loans adjust <unk>.

90 days in.

In arrears, so that when we're selling bonds into the market, we're not able to sell the bonds at a four coupon.

That's why when you go to slide number 21, you could see that we had a tremendous diminution in our gain on sale price of nine 2% for the quarter down.

Down from 12, 5% gain on sale in the first quarter and down from $13 five in the full calendar year, which you could take a look at the history. Because these are government guaranteed floaters. We do believe this is the primary determinant there could be other determinants. That's our opinion that's our guests we do think that there will be a.

In prices, maybe not in Q3, but hopefully in Q4, when prime begins to adjust back but once again, that's our thought that's our opinion, but we are proud of the fact that we were able to make our numbers, even with almost a 20% decline in gain on sale premiums on slide number 22.

One of our helping aspects of that was our net interest income trends. So you can see gross income.

For Q2, 2022 sequentially from Q2, 2021, almost up by $2 million up to $8 million or <unk> 31 from $6 2 million a very nice gain with net interest income going from $4 6 million to $5 1 million net net interest income will improve.

Because our loans change with a lag quarterly but our interest income based upon our lines of credit change monthly so that should be a nice catch up next month slide number 23 refers to the seasoning of the portfolio. That's important to note. We do believe that most of the defaults are behind us into the <unk>.

Old curve.

Slide number 24 important note.

Looking at currency rate 98.

98%.

We worked very hard with our customers. This is a function of making sure our clients have taken advantage of PPP loans.

Allowance NERC credits and we're very aggressive in the servicing area. We typically have 40 to 50 professionals that work with our customers $3 billion servicing portfolio regularly to keep them current.

Unlike <unk> because people are concerned about recession and decline we don't have the overleverage with our client base, we don't have clients that have.

Excessive amounts of I'll call it financial and operational leverage many of them are liquid personally as well as professionally and that has led to an extremely high currency rate.

We are appreciative of the work that our team has done with the portfolio.

This obviously is current as of June 30 to be fair and honest and.

Transparency, we don't expect this particular rate to continue, particularly with rising rates and inflation setting in with our client portfolio, but as we sit here today. We are in very good shape I'd also like to point out on slide number 25, we had a significant decrease in non accrual loans at fair value on December 31.

Approximately.

$30 million June 30.

The $25 million, a nice decline slide number 26, and 27% classic slides that we continue to rollover presentation to presentation now lets move into the portfolio Company review Slide number 29 talking about our SBA 504 loan program, we're still sticking to a $150 million forecast our final four loan business.

It is an important business to us with substantial lines of credit with Deutsche Bank Capital, One Bank with Florida Bank, we look forward to having a good second half of the year Slide number 30 talks about how that 504 business works. We're in the 504 business. Unlike the 700 business, we make a loan.

Typically the entire loan moves off our books second gets taken out through SBA debentures first typically get sold at a gain on sale into the secondary market Slide number 31 talks about the return on equities and the return on equity the final core business towards a 30% return on equity in the <unk> business also north of <unk>.

30%. This is how we're able to generate high ROE as as a BDC high ROE as a BDC and as we demonstrate in the illustration that will talk about shortly generate high ROE as a return on tangible common equity of the bank, we're very excited about our future, particularly lowering our cost of funds.

But it does start off with the fact that we have a 20 year experience in these businesses generating inexpert inexpensive great risk for <unk> versus.

Versus reward assets with a 19 year history in credit.

And financing capability to generate good returns on equity for our shareholders.

Slide number 32, we talk about our nonconforming conventional loan program.

Many people on this call that are familiar with us understand this business.

We basically originate a type of loan it began in 2019 that doesn't fit SBA seven eight criteria in some cases it doesn't a bit because the credit is too good the borrower has too much liquidity too much assets would fail a credit elsewhere and test. Some cases, it's because alone is greater than $5 million in some cases because of <unk>.

Barbara only occupies less than 50% of the real estate. So there's some vagaries in the program, but this is a complete convention alone there's no government guaranteed and.

As of June 30, the balance of loans originated under this program any $4 2 million in January of 2022, we did our first securitization Dvr's rated it we're very excited about that transaction, which we'll talk about.

In the next couple of slides on slide number 33 were.

We are currently negotiating additional JV agreements, we anticipating any final signatures. This week with an institutional investor joint venture partner for $100 million.

In equity capital, we believe we can fund up to $200 million of nonconforming loans in 2022 and on a going forward basis. As we go to slide number 34, the benefits of the nonconforming conventional loan program to new Tech and its enterprise additional origination fees additional servicing income.

Service for 100 basis points on the full balance of <unk>.

These loans are hedged we asset liability match them in the warehouse facility. They give us great operating leverage in the pipeline because loans that don't fit <unk> final for ABL kit that this particular area and this gives us a diversified income streams that really allows us to leverage our existing origination platform.

And the bank forecast, we think will do close to $400 million to $600 million of loans in 2023 and between $600 million 1 billion loans in 2020.

And CLO securitization slide number 35 within our securitization in January 2028, It was $56 3 million class a notes the securitization, which is model in <unk> Mcl business loan Trust 2022 notes were rated single a by Morningstar the weighted average gross group.

Approximately eight two to eight 4% the weighted average net coupon that went into the joint venture seven 4%. That's important to note that the bond the simulate bond had approximately a three 2% coupons. The point here is that the net interest margin for the joint venture partners Us and our other equity partner is north of four.

4%.

Basically invested 37% equity capital so here's the important aspect when you take a look at this we've got very attractive returns on equity for new Tech and its JV partners in the double digit net accumulative expected defaults verity and frequency and for new Tech as the originator of the loans genetic business lending.

We're able to get servicing income of a 100 basis points of the whole size of the portfolio and origination fees were excited about this business. This gives us another engine and we believe that this is going to be very beneficial to us going forward.

And we expect to complete the bank acquisition, the bank holding company transaction and even as a BDC we experienced some nice income benefits from this so we plan on leveraging our levering our operational infrastructure track record securitization expertise to grow our nonperforming conventional portfolio, while continuing to remain focused on growing our.

<unk> and 504 loan programs moving forward on slide number 36, one of our important businesses New Tech merchant solutions with a combined equity fair value of $120 million as of June 30.

From a comparative standpoint, many of you are aware the accompany Evo a public traded company, which was acquired by global I believe the multiple of about 18 times EBITDA very attractive.

Believe we have our business conservatively, Mark and we feel good about that valuation is an important business to us, particularly as we become and anticipate and hope to become a bank holding company slide number 37, New Tech technology solutions, our cloud computing technology service provider, providing all types of.

Allergy salute.

Solutions and advantages to our independent customer base. This has been a difficult first half for us supply chain issues materially affect the results for the first six months, we expect the run rate to improve in the second half of the year. So we've reduced.

<unk> reduced our forecast of $4 2 million of EBITDA for the full calendar year, but we do expect a run rate for the second half to get bumped up to about $3 million of EBITDA.

We are very excited obviously about cloud solutions and cloud services you could take a look at some of our products on slide number 38, which shows what we can provide into the marketplace through new Tech technology solutions.

Slide number 39, many of you are aware, we own Pos provider.

Solution, we're excited about Pos on cloud, we have a 51% interest in that particular entity extremely competitive to square Clover and other systems in the marketplace. It's an all encompassing payment system that can be white labeled for our partners that can process payments integrated E com integrated food delivery services in a <unk>.

Right with GL accounting software like zero square Sage integrates into our own payroll solution. So we're able to do payroll directly from the time and attendance function in the POS we look forward to growing Pos on cloud slide number 14, we talk about our payroll and benefits.

Business and our insurance agency, we're excited that both payroll.

Benefits and insurance estimate profitability in 2022, these will be consolidating entities and we will be giving more disclosure on these businesses going forward. We carry these businesses for a long period of time, and we're fairly confident with their position in the dashboard and being able to margin pool that these businesses will begin to grow at the rates of success.

<unk> had in lending payments and tech solutions going forward.

To conclude on slide number 41 with respect to our primary discussion on our performance for Q2, we're very excited about the numbers, we've been able to deliver and we are hopeful and anticipate that we're going to receive regulatory approval. During the third quarter of calendar year 'twenty two from the fed and the OCC and closer to.

Transaction. Shortly thereafter, I would now like to before I turn the presentation over to Nick quickly go through a presentation that we have in the Investor Relations section of.

Our website.

The new Tech one dot com talking about the update on the pending acquisition of National Bank of New York City. So if you could please go.

To our website and take a look at that deck I think this is important because obviously.

I think many of our investors without much forward guidance on us as a BDC or trying to get some feel for what new Tech will look like as a bank holding company and a bank going forward. Once again I want to report that we are one year into the process of filing.

Pre filing applications and in discussions with the fed for a bank holding company approval on the OCC that are working in tandem to get us approved and that we're pretty excited about our future going forward. We feel very strongly this is in the best interest of shareholders.

And I want to point out that with respect to information on this particular illustration dated August three 2022, I want to point everyone's attention to slide number one and the forward looking statements.

And slide number two of notes regarding projected financial information important the debt gets digested and that these projections and targets are unaudited and presented for illustrative purposes.

On slide number three the acquisition of National Bank of New York City, We anticipate being made for $20 million of cash and one times book.

National Bank of New York City, located in Flushing, New York has been around an established since the fifties. We certainly appreciate the opportunity to make this acquisition.

Clean bank with a clean portfolio and we believe that the.

A publicly traded company owning National Bank of New York City, and merging our lending operations into the bank should really give us very interesting.

And positive results for the future on slide number four you could take a look at an illustration of what the target total asset would be total asset size for the publicly traded holding company.

We think it will come in somewhere around $1 2 billion and if you take a look at the capitalization rates. Obviously this will be a projected targeted well capitalized bank holding company and you take bank in and of itself will start off in a very well capitalized position.

Slide number five we wanted to give the market and the audience a feel for the types of return on average assets and return on average.

Total common equity that we can get for shareholders. These are not normal numbers that you'd see in a typical of traditional billion dollar bank.

Bank holding company with a smaller bank underneath it but we will be able to generate these types of.

Target because the types of businesses that we've been able to develop over the course of 20 years are attractive the SBA seven business. The 504 business. The actual businesses that are going to set up at the holding company that generates reoccurring income. They are noncredit related will all be very benefit.

Sure and accrue we're targeting an earnings per share in our first full calendar year between $2 in 2020.

And our second full calendar year of 2024, the target earnings per share after tax between three and 320.

We do believe these are obtainable based upon the work that we've done. However, this is an illustration there's a lot of pieces moving around as interest rates moving around this quality spreads moving around but we're comfortable being able to put these numbers out and believe that these are reasonable targets.

On slide number six you can take a look at the revenue breakdown and the purpose of this particular slide is to demonstrate we're a unique bank dara to any banks that have the assets.

Payment processor Tech solutions company payroll company insurance agency sitting up at a bank holding company.

And you can see you've got a real nice diversification of income stream from bank lending as well as opportunities that are coming in.

The.

Portfolio companies are going to be held at the bank holding company at slide number seven we go back to our new Tech advantage in the dashboard. The one dashboard you are only going to your business will ever need that we provide you with <unk>.

Relationships look at those relationships six or seven relationships to get relationship manager insurance agent.

<unk> specialists loan specialist. These all people you can click on get them on camera, you get analytics, you'll get analytics and payment processing and analytics and web traffic information stuff you don't get at your typical bank.

We're very excited about delivering the new tech advantage. We have partners that are interested in working with us and we look forward to.

And web traffic information stuff you don't get at your typical bank.

We're very excited about delivering the new tech advantage. We have partners that are interested in working with us and we look forward to further developing and rolling and are important to note all of the things we have here they exist.

Most of these things we have been in operation for over 10 years. Now these units are being pushed up into our dashboard and delivered to customers with a single sign on one interface, giving our clients the ability to see all the things that we can do for them in the area relationships analytics and transact.

<unk> capability.

On slide number eight we talk about our staffing, we're very well positioned and situated to grow. This business you can see some of the talented people that currently exist.

These units are being pushed up into our dashboard and delivered to customers with a single sign on one interface, giving our clients the ability to see all the things that we can do for them in the area relationships analytics.

Transaction capability.

I'd number right, we talk about our staffing, we're very well positioned and situated to grow. This business you can see some of the talented people that currently exist on the payroll for part of our budget going forward I've heard people say well you don't know what it's like running a bank.

You don't Youre not fully staffed and you don't know what the costs are.

I don't think Thats, a good bet to make we know what it's like to be staffed we know what the costs are we have great people. If you look at slide number eight or nine that are very experienced in the banking environment. We've got top shelf advisors between our legal firm people and accomplished with our application that's been banking relationship.

<unk>.

If you go back and you look at our historic returns over the long term.

Not a good bet to bet against New Tech we do appreciate.

Our loyal investors that have stuck with us, particularly through the recent times and this transition we're excited about our future. It's also important to note as we go to slide number 10 management interests are aligned with shareholders really important to note.

This management team and board, we love dividends and we loved that time being a BDC. However, things change markets change. This is the best structure for us going forward, we're really excited about and we've historically been able to outperform the Russell and the S&P and our earnings it really been strong even in the first six months of the year.

So.

With that said I'd like to now transition the remaining portion of this call to Nick Ledger, Our Chief Accounting Officer, Nick take it away. Thank.

Thank you Mac and good morning, everyone. You can find a summary of our second quarter of 2022 results on slide number 43, as well as a reconciliation of our adjusted net investment income or adjusted NII on slide number 45 for.

For the second quarter of 2022, we had a net investment loss of $2 million to $5 million or a loss of <unk> 90 per share as compared to a net investment income of $15 5 million or.

It was <unk> 69 per share in the second quarter of 2021.

Please note that the income related to the PPP of $25 5 million is included in the second quarter 2021 investment income.

Adjusted NII, which is defined on slide number 44 was $18 1 million or <unk> 75 per share in the second quarter of 2022, as compared to $27 million or $1 20 per share for the second quarter of 2021.

Focusing on second quarter 2022 highlights we recognized $19 2 million in total investment income of 47, 6% decrease over the second quarter of 2021 total investment income of $36 6 million. The primary driver for the decrease of total investment income was primarily due to the $25 5 million in fees.

From the PPP in 2021.

Dividends from portfolio companies of $5 million in Q2, 2022 helped offset the decrease of the PPP fees and.

In addition interest income increased by $1 $8 million, resulting from a year over year increase in the accrual loan portfolio.

Other income increased by $1 1 million in the second quarter of 2022 compared to Q2 of 2021 resulted mainly from a year over year increase in SBA seven loan origination volume.

Servicing income increased by 14, 4% to $3 2 million in the second quarter of 2022 versus $2 $8 million in the same quarter of 2021.

Dividends from portfolio companies for the second quarter of 2022 totaled $5 million, which included $3 one from NMS $135 million from NBL, our 504 business $360000 from NCL.

Our conventional loan joint venture and $150 from mobile money.

Compared to the second quarter of 2021, there were no distributions from portfolio companies.

Total expenses for the second quarter of 2022 increased slightly by $400000 compared to Q2, 2021, mainly driven by higher interest related costs.

Realized gains recognized from the sale of the guaranteed portions of SBA loans sold during the second quarter totaled $21 3 million as compared to $14 1 million during the same quarter in 2021.

In the second quarter of 2022, and SPF sold 338 loans for $193 million at an average premium of nine 2% as.

Compared to a 142 loans sold during the second quarter of 2021 for $87 4 million at an average premium of 14%.

The increase in realized gains was attributed to higher SBA seven loan origination volume in the second quarter of 2022, when compared to the second quarter of 2021.

As I mentioned earlier income related to the PPP is included investment income not unrealized gains.

Realized losses on SBA non affiliate investments for the second quarter of 2020, So was $1 4 million as compared to $2 $7 million in the second quarter of 2021.

Overall, our operating results for the second quarter 2022 resulted in a net increase and net assets of $13 5 million or.

Or <unk> 56 per share and we ended the quarter with NAV per share of $16 31, I would now like to turn the call back to Barry.

Thank you Nick operator, we'd love to open it up to Q&A.

Thank you so much and again as a reminder to ask a question you will need to press star one one on your telephone and please standby, while we compile the Q&A roster.

Your first question comes from the line of Paul Johnson from <unk>. Please go ahead and ask your question.

Taking my questions.

Good morning, everyone on the call mentioned a lot of names there earlier.

Anyway.

I was hoping I don't know if theres any way to quantify potentially the impact.

Just kind of.

<unk> over quarter.

Either.

What earnings would have been this quarter potentially.

Kind of the benefit would be next quarter just from the increase in the prime rate.

During the second quarter.

Yes, so Paul it's a tough one because.

That would require us to sort of forecast.

The bond prices going to be in the capital markets are going to do with respect to pricing. So.

I do think with respect to the roll forward.

Youre, probably going to get a lag on that on the coupon so you're kind of apples a partial adjustment between the two recent rate hikes, but the full adjustment of for example, the three quarters of a point that we just had in prime. This is the second three quarters.

That's a fourth quarter event with respect to.

Gross coupon of the portfolio, but you could see that.

We're getting short term movements in the expense, but not the full benefit of the portfolio with respect to gain on sale.

<unk>.

With our portfolio mix.

I don't believe we've ever had a gain on sale that's been.

Lower than the number we had in the second quarter going back over seven years, you can actually see it in the chart.

Is it fair for me to say Gee, I think that'll be the floor.

Can't say that although im optimistic that we should do better from that number.

Hopefully that's somewhat helpful.

Yes, that's very helpful and I understand this.

Question and answer so I appreciate that.

My next question is just kind of around I.

Hey, guys, how you look at.

Sort of a risk as you're underwriting.

Renting in the portfolio in any given quarter is there any point during the cycle, where you would begin to shift your origination strategy to focus on potentially lead to higher quality subset of the <unk> market.

Such as a point in time like today, where we.

Risks are obviously, increasing recession or no recession seems to be a fairly telegraphed slowdown primarily due to the quantitative tightening that's ongoing so I'm just curious how you evaluate credit quality in this business risk in an environment like this.

So I think that.

One way to evaluated is.

And I think this is important to note there.

There are businesses that have.

Adjusted and adapted to the changing environment to where they've actually.

We are in a better spot post pandemic than they were prepaying them, they really looked at their business and the analyzed it so part of it is too.

In conversations with the client.

I asked them in the underwriting process what are they done to adjust.

Prospectively to rising rates going forward, how liquid are they.

What are they plan on doing with respect to cost of labor in running their business and they see those pressures, but also it's very important that if you are anticipating a downturn in revenues does the business have enough liquidity to be able to weather 12 to 24 months or any kind of a reduction in revenue.

How are they able to reduce expenses to be able to maintain their cash flows and service their debt.

The good news with respect to our business model is.

We're seeing tremendous amounts of opportunity to be able to pick through the best credits.

There are certain markets and industries, we are more sensitive to particularly what I'll call.

Leisure retail hospitality, where the cost of labor is difficult hiring is difficult and I'm suspecting numbers. You also want to be really really careful in looking at the 2021 history of recent quarters. When you kind of add a little bit of a goldilocks environment that might change, particularly if demand changes.

So we've been very pleased that our underwriting has I'll call. It tightened we're doing smaller loans, we are getting more diversification, which we're big fans up because that is clearly a risk reducer diversification across units geography.

And industry.

Do you want to be careful in particular industries like transportation.

We're energy costs or energy shortages could be really problematic in disruptive, particularly with supply chain issues, you just need to be.

Lot more thoughtful.

When you go through the underwriting process for approval.

Yes.

Yes that makes sense.

That's a great answer great color there.

Shape.

Last two questions.

I'm, assuming just as we're probably in the final quarters here as a BDC. We can expect here you are pretty much expecting to be paying out 100% of NII at this point so.

Just wanted to make sure I'm looking at the dividend forecast.

Dollar to $1 50 for second half of this year I think that should be a fairly good approximation of what you expect for earnings in the second half.

Yes, I think that.

<unk>.

We will be pretty close to the top end I mean at this point it does not pay to retain because you've ultimately got to pay.

Pay it out.

You were throwing the election, so I think we would be.

The very wide range that you show on dividends will be pretty close to what I'll call the full payout.

Got it got it.

My last question.

Kind of just has to do with the.

Bank and I'm not sure if you're able to how much youre able to answer at this point, but I'm just curious around.

Sort of the legacy SBA portfolio I guess.

Current SBA portfolio today, which.

We will reside outside of the bank.

Going forward.

Will that portfolio.

That sort of runs off how do you sort of intend to use the proceeds.

From that do you expect to use that to this dropdown funding I guess into bank or.

Is that kind of something that will sit on the parent company balance sheet <unk> and other investments.

Just curious about what the expectations are for for that is that continues to wind down over the years sure. So I think.

Well, it's been difficult I think for us to get across to the investment community is we have historically had some fund SBA <unk> growth and 504 loan growth by selling a dollar of stock.

It reduces your EPS, because youre, increasing your share count.

We see that unsecured secured probably five or six.

Those businesses can be fund almost 100%.

Out of the bank with retail deposits.

That's even though you're paying tax.

Measurably beneficial and measurably and.

That activity should be in the bank now the legacy portfolio as we have said previously new.

<unk> small business finance licensed nonbank lender.

That is designed and we're still waiting for.

Obviously final approval on everything, but we believe based upon conversations to set up at the bank holding company and a run off mode. So those loans are in securitization.

It will run down to the new business will be in the bank.

The other business will be able to bank holding company and a run off mode.

And that we believe also will be attractive because we'll be able to ultimately harvest the equity that's sitting in that in that particular relationship over time so.

<unk>.

We do think that.

Primarily using core deposits versus securitization.

And other interim funding amounts will be a measurably beneficial.

We still will be utilizing securitization at the bank holding company and May actually do Securitizations out of the bank from time to time from a diversification standpoint.

Got it that makes sense.

Those are all my questions this morning and I.

I appreciate it thank you.

Thank you so much mackinnon if you would like to ask a question press Star one one on your telephone keypad.

And our next question from the line of Adam Wyden of RBC. Please go ahead.

That's on a quarter.

Just kind of looking forward as we're in this new paradigm I guess with the fed what do you think is if you could just talk about.

Unlocking value as a bank for owning a bank for shareholders how does that.

Kind of just summarize some of the points on that.

It might look like.

Sure Adam I appreciate the question because today, New Tech has primarily five lines of business.

At.

They do operate.

Primarily independently from each other.

And by being able to.

Get our client base to focus on the fact that we do all these things without having to have.

Human activity talk about them or coordinate them.

To be able to message them. So the new take advantage of the dashboard.

It is going to be illuminating to our customer base.

The dashboard or the new take advantage is going to be right. There as we open up the depository account as we are able to margin pool.

My payment processing clients today, they have their deposit elsewhere my payroll accounts that have the deposits elsewhere.

Ability to margin pool and give.

Brakes on.

The web hosting.

Terminals.

Hosting hosting plans payroll.

These things are going to be very beneficial to clients and the analytical tools that youre going again, so theyre going to get a lot of things.

Things in one place they typically go to two to three four or five times, a week 12 times a month to be able to see it in front of them. In addition, when you compare what we do versus their current depository, It's night and day.

The depository don't give the customers anything they take their money and maybe you will make them alone with us theyre going to get analytical tools to run their business futuristic Lee we believe that we'll be able to integrate most of these things into one GL. We currently have GL integrations today that we'll be able to eliminate them.

We're going to realize that they've got a full team of professional solution providers, where they don't get that today, whether it's the top four banks.

Several thousand community banks or the Superregionals. So in addition to that we currently have got existing financial institutions that have said Gee, we want your dashboard would you white label it for us. So we've become the backend Bureau, so I could take a small community bank that can't afford to do all of these services and I can.

Put them in business overnight.

And I can provide payroll to their clients Michael provide payments to their clients I can provide insurance to their clients all under their brand and unlocking that value from a software and technologic technological perspective. In addition to being a great product tool, we think will bring great shareholder value it'll be similar to what I think <unk> has been able to do.

<unk> with Encino, where they've spun out these technologies, but sort of in a very different manner, we will be very much behind the software. So we bring software people and process to the customer base, we think that putting these tools that we've developed over 20 years in a banking environment.

It's going to be easier for our clients to see it's going to be easier for our clients to access and it's going to be easier for our employees to deliver those solutions to the customer base. So that we talk about unlocking which is.

It's a simple word.

A few syllables do it but there's a lot more behind it and that's that's what we mean by unlocking value.

Yes that makes a lot of sense. Thank you so much.

I appreciate it.

Thank you so much and we don't have any more questions I would now like to turn the conference bringing further good news from the tech for closing remarks.

We know that was a mouthful and we appreciate you getting that and within an hour and we really appreciate your attendance and a lot.

A lot of people on this call today bigger numbers than ive ever seen before and very very thankful.

To the audience for questions to the analysts that joined we had two analysts put out reports on this this morning, and we appreciate the updates and look forward to our next report.

Look forward to bringing further good news from the tech have a great day, everyone. Thank you.

Thank you presenters and this concludes today's conference call. Thank you for participating and you may now disconnect.